An Analysis Of Chinese Enterprises Handling The Business Of Offshore Financing Against Domestic Guarantee

From 2010 to 2014,the foreign exchange reserve in China was in the trend of increasing year by year.In view of this,the national capital controls were gradually eased accordingly.And then the government also loosened the restrictions on the policies for financing institutions to overseas open domestic and foreign currency financing guarantees or Standby Letter of Credits.On the other hand,the RMB-dollar exchange rate has undergone the phase of unilateral appreciation for 5 years during this period.Meanwhile,the interest rates of domestic RMB securities were all higher than financing rates of overseas foreign currencies..The double effects of interest rate spread and exchange rate difference created considerable margins for interest arbitrage.Also,the national foreign exchange policies were loose as a whole.In such an environment,domestic enterprises and banks as well as overseas banks successively realized this phenomenon during this period,thought deeply by coincidence and worked out a kind of product together to make it smoothly integrate incomes of domestic and foreign interest rate spread and exchange rate difference.Such a product was the offshore financing against domestic guarantee.This business began in 2010,achieved rapid developments later and reached the peak in 2014.Influenced by exchange rate depreciation from 2015,the offshore financing against domestic guarantee could not continue to realize interest arbitrage.Therefore,its business volume shrank sharply,bringing it into the downturn of its developments.Did the business die out hereof?The answer was No.The reason was that it didn’t change its function of effectively integrating domestic and foreign interest rate spread and exchange rate difference.The evolutions of interest rate and exchange rate followed their objective operation laws.The double effects of interest rate spread and exchange rate difference might come out again in the future.On this occasion,the business of offshore financing against domestic guarantee would also encounter another favourable opportunity for its developments.In that way,it will be very necessary to start from this perspective,understand and master the business of offshore financing against domestic guarantee,and analyze and estimate trends of interest rate and exchange rate.This article makes profound and comprehensive introductions of the business of offshore financing against domestic guarantee in order to help domestic enterprises to well understand the business of offshore financing against domestic guarantee,expand their horizon,broaden their trains of thought and create new profit models.Therefore,this article is of practically guiding significance.